Macroeconomics: UK economy, IB Economics

Phillip Inman looks at the current state of public finances and seems to accept that its likely that neither the Conservatives or Labour are going to be in a position to cut taxes post-election. Instead, they're effectively competing to convince voters who will increase taxes the least.

This explainer looks at the options facing the parties with regard to a raft of taxes. 

Almost overlooked in the news that we've got a General Election at the start of July, were the latest public finance figures which rather confirmed the IMF's gloomy view. The budget deficit increased by £1.5bn last year, pushing government borrowing above £20bn last month and keeping government debt at 97.9% of GDP.

And this means that the Chancellor wouldn't have had any realistic chance of offering pre-election sweeteners, and might have been one of the things that precipitated the announcement of the 4 July election. 

Are the public finances improving? Government borrowing last month was £8.4bn, attributable to higher benefit payments; however, the figure was down £3.4bn on the previous year and the government are keen to portray this as part of a general move in this direction. 

Overall, government debt is currently 97.1% of GDP, and, according to the OBR, the government is on target to hit its pledge to see debt falling as a percentage of GDP in five years' time.

The Guardian preparing the ground for today's Budget, with five charts looking at major macroeconomic variables: inflation, economic growth, fiscal headroom, taxation as a % of GDP and public spending. 

Expect tax cuts, some spending cuts and a lot of flannel...

And here's a Guardian editorial suggesting that there needs to be a long-term solution found to the chronic under-funding of local government. There needs to be more devolution and a more sensible multi-year approach to budgeting to allow local councils to plan their spending over a longer time period rather than living from year to year. 

With the Chancellor currently down the back of the sofas in the Treasury, looking for scraps of lost change, another think-tank, the IFS, has come out and asked him to make it clear how any tax cuts in next week's Budget are going to be funded. 

The Today programme on Radio 4 suggested that he's looking to cut 1p from National Insurance and the same again from income tax, but there's a general sense that such a move would be exceptionally hard to justify given the current state of public finances, never mind the current level of inflation. 

A surge in self-assessed taxes mean that January's public finances are unusual relative to the rest of the year, but this year's £16.7bn surplus is a record, and will encourage talk of tax cuts. 

However, all indicators are that this wouldn't be wise - the surplus is smaller than anticipated and the overall situation for the financial year broadly in line with expectations, and national debt remains close to 100% of GDP.

Nevertheless, the situation will improve with the cost of financing that debt falling alongside inflation. 

I'll leave this here, with relatively little comment; even though the data largely comes from a Resolution Foundation report, there will be many who complain that it is pushing a particular agenda. 

However, for all the criticism, I would point out that the video looks at the state of the economy since 2000, and its coverage of Brexit isn't unduly harsh either.

Today is apparently the day that's become known as "national sickie day" but the Guardia have used it to flag up the increased rate of long-term sickness that appears to be holding back to UK economy. There are currently 2.8 million people in this position, up from 2.1 million pre-pandemic and it represents a significant decrease in the labour force. 

This, of course, has a range of macroeconomic implications - both for the main macroeconomic objectives and the public finances. However, because the ONS are currently trialling the collection of labour market data because of worries about the reliability of the Labour Force Survey, we might have to wait a little bit more time for a definitive position.  

And here are the implications of improved public finances, greater wiggle room for the Chancellor in his next Budget, given that most people now expect the economy to undershoot government borrowing forecasts. In short, he's got money to play with - and for a Conservative government, that's likely to mean pre-election tax cuts. 

According to the article, another freezing of fuel duty and potentially 1p off the basic rate of income tax look most likely to be the measures adopted. 

This Larry Elliott piece looks forward to a potential Labour election victory but notes that should it win the next election, it's going to inherit an economy in pretty feeble shape: growth has flatlined, inflation remains disconcertingly high, not least relative to our trading partners, and there's no money to finance improved public services. 

As a result,  Elliott thinks that the Labour Party are going to have to have an emergency revenue-raising budget shortly after taking office. 

This lengthy Tutor2U clip looks at the current state of the UK economy, in part as a primer for people retaking examinations, but it's also a good resource for people with Oxbridge interviews perhaps. It looks at the UK's main macroeconomic objectives and does so nice and clearly. 

More of the same, looking less at the policy solutions and more at the macroeconomic implications of the Autumn Statement for the wider economy. 

The Institute for Fiscal Studies (IFS) are certain that the state of public finances is such that, irrespective of whoever wins the election, there are tough choices to be made in the form of tax increases or spending cuts. As a result, they are calling on both parties to be transparent in their election campaigns, and realistic in the pledges that they make to the electorate.

It never rains but it pours for the current government. Not only are interest rates likely to stay higher for longer, given recent inflation data, but today's government borrowing figures make it clear that there's also going to be less room for pre-election tax cuts too.

According to the article, borrowing "reached £120.7bn in the year to March...£6.6bn more than the government's forecaster predicted." As a result, the national debt is still 98.3% of GDP.

Richard Partington writes on last week's Budget comparing the Chancellor to a snake-oil salesman pitching something he knows to be fundamentally disappointing, to an expectant nation.

He calls for an end to the pie-in-the-sky policymaking and a return to honest debate about crumbling infrastructure, low productivity and unfunded pledges to cut taxes, increase public spending or both. 

Richard Partington with his take on 14 years of Conservative government. Unsurprisingly, it's not terribly complimentary. 

The grim state of local government finances is revealed in this Guardian piece that highlights the fact that 10% of them expect to go bust in the next year. That's not a healthy state of affairs, irrespective of your political persuasion. 

The Guardian is trying, somewhat disingenuously I feel, to create a narrative where tax cuts are being encouraged, if only so that they can condemn them in due course. Why not state that any supposed increase in fiscal headroom is insignificant, something that the quotation from Ruth Gregory itself implies later in the article.  

Larry Elliott's Observer piece picks up on one of the week's salient themes, the level of long-term sickness and the implications of this for the wider macroeconomy. Factor in the loss of migrant workers post-Brexit and it has obvious obligations for growth, inflation and unemployment. 

There are now 2.8 million people who are economically inactive, and any future growth is likely to be contingent on getting a number of them back into work. Without this there can't be growth and, I'd argue, the increased strain on public finances will also become problematic. 

Proof of the unequal distributional effects of the pandemic, with the NIESR reporting that the poorest won't see their living standards recover to pre-pandemic levels until 2027. 

It's a remarkable indictment of government policy that this should be true of the the world's sixth largest economy. The author of this report, notes that given the unexpected 'strength' of the public finances, it would be pretty awful if the government decided to offer tax cuts rather than tackle this issue. 

In the wake of the news that the Chancellor is contemplating another tax cut, the Observer looks at the state of public finances, to see look at their state and what this means for the next government. 

The latest public finance data is good news for the government, with government borrowing substantially down, to £7.8bn December, more than £8bn down on the same month last year. 

What's driven this improvement? Easy. Falling inflation has reduced interest payments on government debt. That said, total borrowing for the year so far is still £119.1bn and the national debt remains high, £2.67 trillion, equivalent to 97.7% of GDP, and at a level not seen since the 1960s. 

For those of you in Year 12, these may sound like alarming numbers. So how would you go about determining whether they are a concern or not?

For those of you in Year 13, thinking about forthcoming examinations you might think about trying to counter the Chief Secretary to the Treasury's view that "...it is right that we pay back these debts so future generations are not left to pick up the tab." Is it helpful to see government finances as equivalent to a household budget? 

Really rather nuance Larry Elliott piece about the impact of Brexit on the UK economy which argues that contrary to what we might wish to think, Brexit can't be held responsible for a precipitous decline in the UK economy. In fact, there are some signs that Britain is doing OK relative to France and Germany, but there are still issues for smaller firms adjusting to the post-Brexit world. 

The reality is that many European economies are currently struggling, not least as a result of the Single Currency, the lack of a coherent EU federal budget and an adherence to neoclassical economic theory in relation to public finance. 

I wonder what William Keegan would make of this? 

The Office for Budgetary Responsibility (OBR) forecast published to accompany the Autumn Statement has downgraded its growth forecasts for the next couple of years. Whereas previously, economic growth was forecast to be 1.8% in 2024 and 2.5% in 2025, this has been lowered to 0.7% and 1.4% respectively.  Equally, inflation is going to be tougher to get back to target, only reaching 2.8 % by the end of 2024 and only reaching the inflation target by 2025.